EU accuses 13 investment banks of hampering CDS competition

Goldman Sachs and JPMorgan Chase were among more than a dozen financial institutions accused by the European Union of colluding to curb competition in the credit derivatives industry.

Bloomberg reports that the EU sent a so-called statement of objections to 13 banks, data provider Markit Group and the International Swaps & Derivatives Association over allegations they worked together 'to prevent exchanges from entering the credit derivatives business between 2006 and 2009', the European Commission said in an e-mailed statement.

'It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives', Joaquin Almunia, the Brussels-based commissioner in charge of competition, said in the statement. 'Over-the-counter trading is not only more expensive for investors than exchange trading, it is also prone to systemic risks'.

Global regulators are seeking to toughen regulation of the credit-default swap market, saying the trades helped fuel the financial crisis. The U.S. Department of Justice is also probing the credit derivatives clearing, trading and information services industries. The EU’s swaps probes add to separate investigations into whether banks colluded to manipulate the London interbank offered rate and oil benchmarks.

'It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives', Joaquin Almunia, the Brussels-based commissioner in charge of competition, said in the statement. 'Over-the-counter trading is not only more expensive for investors than exchange trading, it is also prone to systemic risks'.

Other banks in the probe include Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, Barclays, Bank of America, HSBC, Royal Bank of Scotland, BNP Paribas and UBS, the commission said. Bear Stearns, which is now a unit of JP Morgan, was also named by the commission.